Bubble Trouble in Silicon Valley

Third-generation venture capitalist Tim Draper believes he has a solution for California's problems that will make the Silicon Valley safe for its wealthy: secession. In a recent interview, Draper suggested that California be divided into six states, including one dominated by the Valley and its urban annex, San Francisco.

By jettisoning California's deeply troubled components – the Central Valley, the Inland Empire, Los Angeles – the Silicon Valleyites can create their own enclave, where incomes will be far higher – $63,288 per capital compared with the $46,477 for the whole state. If adopted, Draper's proposal would mean our self-styled cognitive leaders wouldn't have to deal with interior California's massive poverty, double-digit unemployment, farmer demands for scarce water supplies or manufacturers seeking reasonable energy prices.

Yet, for some in the Valley, Draper's proposals don't go far enough. Another venture capitalist recently suggested that the Valley do away with this whole United States thing entirely and form its own Republic. “We need to run the experiment, to show what a society run by Silicon Valley looks like,” venture capitalist Chamath Palihapitiya argued.

The notion here is that Silicon Valley might do best if detached from the limitations of American citizenship, with firms essentially running their own countries from islands or man-made, offshore facilities, as proposed by libertarian investor Peter Thiel. What the Valley wants, then, is to be left alone – unencumbered by the masses – so that the clever crowd can live with low taxes, in a perfectly socially liberated environment, but without the encumbrances that come with having to worry about the less-cognitively gifted.

This can be seen in the growing pushback over such things as massive wealth accumulation for dubiously useful ventures, and egregious privacy violations. The luxurious Google employee buses shuttling in and out of San Francisco are resented by some residents stuck riding the often poorly maintained, sometimes awful Muni.

One top venture capitalist, Thomas Perkins was so upset over what he sees as scapegoating of the rich that he compared their condition to Jews in Nazi Germany. His directness upset some, but may have expressed more of what is really thought by smoother, younger, more PC-conscious executives.

This is more than simply the usual case of rich people being out of touch. These are not media constructs like Kim Kardashian or Paris Hilton but very powerful, incredibly wealthy people who increasingly are a dominant force in California and national politics. Yet, their political positions often have a “let them eat cake” character. And to be sure, some new oligarchs lean right, mostly on the libertarian side, but these are a distinct minority. The notion of some in the Republican Party who see the Valleyites as saviors is nothing short of delusional.

For the most part, executive and workers at firms such as Google, Apple, Facebook and Twitter are strong proponents of every politically correct idea from climate change legislation to opposing the expansion of suburbia and favoring gay marriage. Yet they are also becoming the wealthiest entities in the nation; besides GE, a classic conglomerate, the largest cash hoards now belong to Apple, Microsoft, Cisco, Oracle and Google, all of which sometimes have more dollars on hand than the U.S. government. Seven of the eight biggest individual winners from stock gains in 2013 were tech entrepreneurs. They were led by Amazon's Jeff Bezos, who added $12 billion to his paper wealth; Mark Zuckerberg, who raked in an additional $11.9 billion; and Google co-founders Sergey Brin and Larry Page, who each gained roughly $9 billion.

Given their phenomenal wealth, one observer compared Silicon Valley politics to those of a mall outlet selling Che Guevara t-shirts. They no doubt nod their heads when President Obama speaks of economic inequality, but when it comes to doing something about it, their general response is: Nevermind.

However they color themselves politically, the oligarchs live above and apart from the rest of society – and, like Draper, want to keep it that way. Their desire to separate from the hoi polloi is natural and stems, in part, from their notion of being a class apart from mere mortals. “We live in a bubble, and I don't mean a tech bubble or a valuation bubble. I mean a bubble as in our own little world,” Google CEO Eric Schmidt boasted to the San Francisco Chronicle in 2011. “And what a world it is. Companies can't hire people fast enough. Young people can work hard and make a fortune. Homes hold their value. Occupy Wall Street isn't really something that comes up in a daily discussion, because their issues are not our daily reality.”

Certainly, politically correct gestures, like support for climate change legislation, don't change this calculus. Google executives, for example, urge the middle class and working class to pay for subsidized, expensive energy – which they also invest in – but maintain their own fleet of private planes.

The distinct sets of rules for oligarchs and everyone else extends even to the most personal issues. Yahoo's Marissa Mayer, a former Google executive, banned telecommuting options for employees – particularly critical for those unable to house their families anywhere close to Yahoo's ultrapricey Sunnyvale home town. Yet, Mayer, pregnant at the time, saw no contradiction in building a nursery in her office.

Nor can it be said that the Valley elite gives at the office. Rather than “share the pain,” tech firms are notorious for not paying much in the way of taxes, including taxes on their properties. Facebook, for example, paid no taxes in 2012, despite making a profit of over $1 billion. Apple, which the New York Times recently described as “a pioneer in tactics to avoid taxes,” has kept much of its cash hoard as part of its basic corporate strategy.

Individuals like Microsoft Chairman Bill Gates have voiced support for higher taxes on the rich, yet Microsoft has saved nearly $7 billion on its U.S. tax bill since 2009 by using loopholes to shift profits offshore, a Senate panel said in a recent report. As former congressman Barney Frank noted recently, Microsoft and other tech titans “have as good a record of tax evasion as anybody.”

Such miserliness also extends to private philanthropy. There is no equivalent financed by Silicon Valley of anything comparable with the energy-industry-financed Texas Medical Center, nor can we expect any of the tech elite to leave behind anything so durable as the Carnegie libraries. For all their loud advocacy on environmental and education issues, the Valleyites are generally considered miserly when it comes to charity, as only four of the top 50 charitable contributors in 2011 came from the tech sector.

They may give big to the elite universities, like Stanford, but they seem oddly unengaged in the struggles of the vast working-class population around them: Poverty rates in the Valley's home of Santa Clara County since 2001 have soared from 8 percent to 14 percent, a jump of 75 percent. The self-proclaimed “capital of Silicon Valley,” the city of San Jose,notes urban geographer Jim Russell, is beginning to resemble a post-industrial “rust belt” city. To expect the Valley elite, ensconced in superpricey Palo Alto or San Francisco, to concern themselves with the Central Valley, beyond the Diablo Range to the east, is beyond wishful thinking.

Remarkably some people, on both the right and left, believe that the Valley's tech community should reform the nation, and recreate the government in their image. True, the likes of Harry Reid and Mitch McConnell do not inspire much confidence, but a society run by the tech lords would be very cold, and highly stratified.

Silicon Valley's problem, as author Jaron Lanier has put it, “is people.” Ultimately, human beings will resent being transformed into little more than digits in a Google algorithm that is then sold to advertisers. Most Americans reject being looked down on by a group that, given accidents of birth, access to money, social networks or even high intelligence, wishes not to share a state, or even a nation, with those who have less. That these attitudes now emanate from people who consider themselves both progressive and uniquely enlightened is not only hypocritical, but almost qualifies as obscene.

".....For the most part, executive and workers at firms such as Google, Apple, Facebook and Twitter are strong proponents of every politically correct idea from climate change legislation to opposing the expansion of suburbia and favoring gay marriage......

".....Given their phenomenal wealth, one observer compared Silicon Valley politics to those of a mall outlet selling Che Guevara t-shirts. They no doubt nod their heads when President Obama speaks of economic inequality, but when it comes to doing something about it, their general response is: Nevermind.

However they color themselves politically, the oligarchs live above and apart from the rest of society – and, like Draper, want to keep it that way. Their desire to separate from the hoi polloi is natural and stems, in part, from their notion of being a class apart from mere mortals......

".....Certainly, politically correct gestures, like support for climate change legislation, don't change this calculus. Google executives, for example, urge the middle class and working class to pay for subsidized, expensive energy – which they also invest in – but maintain their own fleet of private planes.

The distinct sets of rules for oligarchs and everyone else extends even to the most personal issues......"

I think one of the best essays of all time was recently written by James Delingpole on Breitbart: "THE ONE PERCENT EMBRACES GLOBAL WARMING, DITCHES CAPITALISM"

".....no one in the world gives quite so extravagantly to lunatic environmental causes as the membership of the one per cent.
Who, for example, was behind the Obama administration's master-plan to revive the US economy through the creation of "green jobs"?

Why it was none other than billionaire George Soros, via his Center For American Progress, which he funds to the tune of $27 million a year. (Along with numerous other environmentalist causes ranging from funding the hard-left Tides Foundation to his $14 billion green private equity firm Silver Lake, which he set up with Obama's former Energy Czar Cathy Zoi).

And who pays for Britain's most influential environmental propaganda outlets, the Grantham Research Institute and the Grantham Institute for Climate Change?

Nor yet, all those wealthy charitable foundations such as the Rockefeller Foundation, the Esme Fairbairn Foundation, and the Pew Foundation, which may have been created by the money of arch-capitalists but which now have political affiliations in the green movement and elsewhere.....

".....I deal with this in more detail in my new book The Little Green Book Of Eco Fascism (Regnery) which I wrote partly to expose one of the green movement's most outrageous lies: that all the money is on the capitalist side of the argument and that green campaign groups are just cute little mom and pop operations living from hand to mouth.
Yeah, right. As Australian blogger Jo Nova has demonstrated when it comes to funding climate change alarmism, spending on Warmist causes outweighs that of spending on Skeptical causes by a factor of around 3,500 to 1.

What applies to "climate change" will certainly apply at least as strongly to all those other green causes so beloved by philanthrophic rich people with nothing more sensible to do with their money, such as "biodiversity,” "sustainability,” and the rest.

Why, though, would so many Hollywood stars, hedge funders and industrialists who have gotten rich thanks to the capitalist system now rush so eagerly support the kind of people who want to regulate markets, drive up the price of energy, and deliberately limit economic growth (in order to preserve "scarce resources" for "future generations")?

Here are my theories on this.

1. Misdirected guilt. Making big money often involves questionable behaviour. Donating all their ill-gotten gain to the cuddly polar bears and the Truffula trees is the perfect way for evil capitalists to feel all warm and gooey about themselves. Hey, what could be nobler than actually saving the whole PLANET?

2. Pure ignorance. Being good at pretending to be someone else on a film set or shorting pork belly futures does not necessarily mean you think deeply or read widely. Shallow people are drawn to superficial belief systems, such as environmental theory which owes much more to feelings than it does to real world evidence.

3. The Dumb Useless Heir Effect. This applies mainly to charitable foundations. Dad makes the money through raw capitalism; his sons and daughters, not needing to work for a living instead spend their time swanning around college, imbibing the very worst of liberal thinking on every pointless left-wing cause going. So Dad's money ends up being spent trying to destroy the very capitalist system from which his wealth derived.

4. How else do you get George Clooney to come to your parties? This, so it is rumored, is what inspired Arianna Huffington's famous conversion from Conservatism to Liberalism. The same applies, no doubt, to hedge funders like our friend Tom Steyer. Donating to green causes makes you feel good about yourself AND get the approval of Hollywood A-listers.

5. Peer group pressure. Apart, possibly from the Koch brothers, who can you name who openly donates to institutions which defend free market capitalism against environmental activism? You can't because there's no one. Environmentalism is so fashionable that no one wants to be seen publicly to be against it. (Not even those people informed enough to know that when you scratch below the surface environmentalism has less to do with saving the planet than it does with socialistic wealth redistribution, junk science, Solyndra-style corporatist cronyism)

6. The drawbridge effect. You've made your money. Now the very last thing you want is for all those trashy middle class people below you to have a fair shot at getting as rich as you are. That's why you want to make energy more expensive by opposing Keystone XL; why you're all for environmental land sequestration (because you already own your exclusive country property); and Agenda 21 - which will make all Americans poorer, but you not so much, because you've enough cash to cushion you from the higher taxes and regulation with which the greenies want to hamstring the economy......."

I think Mr Kotkin misses a key point. While Draper and other technologists might fantasize about having their own state, this could appeal to other regions who would like to escape Bay Area domination. The wealthy in the Bay Area don't have much interest in the Central Valley and so don't feel any responsibility for addressing poverty in these inland regions. Unshackled from the coast, the Central Valley might have some chance of addressing their problems on their own.

I expect this initiative will garner enough signatures to make the ballot, and thus generate a lot of hoopla. I rather doubt it will win though it may attract considerable inland support. There also is the issue of Congressional approval. The odds ultimately are remote.

Regarding philanthropy. Is it not really an older man's game? Certainly Hewlett and Packard devoted large sums. We have the Monterey Bay Aquarium and the Packard Children's Hospital. Bill Gates (a technologist albeit not a Silicon Valley resident) created the largest charitable foundation ever. Mostly, younger wealthy technologists continue to work at their companies, perhaps occasionally making a donation such as Mark Zuckerberg did for NJ schools. They sometimes begin to slow down in their 50s and start thinking about doing other things with their lives and their fortunes.

Great essay. Its important that we keep drawing attention to the fact that these companies, while they love to talk about how they do things differently, are very much the same when it comes to dodging taxes and acting out of moneyed self interest.